A previous article looked at Proof of Work, the energy-intensive means by which Bitcoin’s security is maintained and transactions are processed. As a Waves token, Incent relies on a version of the more streamlined Proof of Stake consensus model.

In a Proof of Work (PoW) network, nodes use computational resources to secure the blockchain. As we explored in a previous article, PoW miners compete to find the cryptographic equivalent of a needle in a haystack. The miner who finds one gets to add a block of recent transactions to the blockchain, and is rewarded with a batch of new coins.

Computing power and electricity are scarce resources, and that scarcity helps to underpin Bitcoin’s security and value. Miners have to cover their costs and if a miner tries to act dishonestly, the rest of the network will notice and their effort – and a lot of costly resources – will have been wasted.

An alternative approach

Proof of stake (PoS) networks also use a scarce resource, but instead of CPU cycles and electricity, it is coins on the blockchain network. There is a finite supply of coins, and they have financial value. Instead of the probability of mining the next block being based on how much computing power you can provide, it’s based on how many coins you have.

For example, let’s say a network has a total of 100 million coins. 50 million of these are used by miners or ‘stakers’ for securing the network. (The remaining 50 million are held by other users who, for one reason or another, don’t stake their coins.)

If a miner has 500,000 coins, or 1% of the total used for staking, then their chances of generating the next block will be 1 in 100. Effectively, each coin is a lottery ticket: the more you have, the more likely you are to win, but there are never any guarantees.

What’s at stake?

In each case, the networks are secured by the cost of making a successful attack. In a PoW system, you would need more computing power or ‘hashrate’ than the rest of the network put together – known as a 51% attack. In a PoS system, you would need more coins than anyone else.

In order to achieve that, you would need to buy coins to reach the 51% threshold. But by doing so, you would likely drive the price up to astronomical levels – and then, by attacking the network, you would destroy the value of your stake.

Waves and Incent

Incent is a token on the Waves network, which uses a proof-of-stake consensus algorithm. Because PoS doesn’t require dedicated hardware or large amounts of electricity, it is far more environmentally-friendly than Bitcoin.

Waves is also designed for speed and flexibility. It’s much faster than Bitcoin and can support many hundreds of transactions per minute, and it has other features like a built-in decentralised exchange for trading and smart contracts, so you can effectively execute software on the blockchain – making it more suitable for the needs of a mainstream fintech application like Incent.

Incent is live! Australian users can access rewards in Incent tokens on every spend they make. To find out more, visit www.incent.com.

The content of this article does not intend to provide any general or personal financial product advice (as defined in Section 766B of the Corporations Act). It is meant to be informational and of a general nature only. You therefore need to carefully consider whether the information in this article is relevant to you in light of your particular needs and circumstances.

INCNT is a cryptocurrency and its value (along with other cryptocurrencies mentioned in the article) will depend entirely on the current market supply and demand. Therefore, we cannot guarantee the value of any cryptocurrency (including INCNT) at any time, nor do we guarantee that the value of any cryptocurrency (include INCNT) will either rise or fall (or become valueless) in relation to any other form of value, including fiat currency, or other digital currencies. The article is not an endorsement of any type of cryptocurrency.